COVID-19 sped up digitalisation like never before. Governments and businesses rushed to contain the impacts of the pandemic by digitalising. Those who had already digitalised were cushioned against severe impacts to their operations and were also quick to adapt to the demands of the post-pandemic world.
The recently published 2022 IMD World Digital Competitiveness Ranking, confirms this. The report depicts how countries with better performance in the rankings, were also the ones that were quick to adapt to the changing needs of a post-pandemic world. To understand more, we speak with José Caballero, Senior Economist at the IMD World Competitiveness Center, to understand this year’s rankings, and how countries in Asia-Pacific fare.
Exhibit 1: World digital competitiveness ranking, 2022 (top 30)
Unravel: Please explain the three pillars that define digital competitiveness and which countries fare the best in each.
José Caballero: The Knowledge factor is critical for the development and adoption of new technologies. This factor refers to the necessary infrastructure, which underlines the process of digital transformation through the discovery, understanding and learning of new technologies. It measures the quality of human capital available in a country, as well as the level of investments in education and research and their outcomes. The top countries in this factor are: (i) Switzerland, (ii). Sweden and (iii) Canada.
The Technology factor assesses the overall context through which the development of digital technologies is enabled. It assesses the impact of regulation in encouraging innovation in the private sector, the availability of capital for investments and the quality of the technological infrastructure. The top economies in the Technology factor are Singapore, Hong Kong SAR and UAE.
The Future Readiness factor examines the degree of preparedness of an economy to assume its digital transformation. It evaluates the inclination towards technology adoption within society at large, and the agility of the private sector to pursue such an adoption as well as the level of IT integration; that is, how well IT relevant practices and processes are applied by all actors including the government. The leading countries in this factor are Denmark, Korea and the US.
Unravel: In this year’s rankings, cyber security has taken centre stage in being a key driver for digitalisation. Please explain why this becomes so important and what businesses must do to ensure cyber resilience’.
Mr Caballero: Securing digitalisation is critical because it increases the widespread use of online services by strengthening individuals’ trust in the provision of services and the reputation of service providers among consumers. Cyber security, by creating a safe context for greater service provision and usage, thus contributes to the greater adoption and diffusion of new technologies leading to increasing digital competitiveness. As some recent cyberattacks (Holiday Inn’s parent company IHG and Australia’s Optus) illustrate, neglecting the security side of digitalisation can lead—at the very least—to disruptions in business operations, and thus to a loss in credibility of the very services provided. Cyberattacks also increasingly threaten government activities, for example, a recent attack temporarily took down Taiwan’s presidential office website.
Most virtual security breaches occur because of human error. At the same time, cyber-criminals are becoming ever-more sophisticated in their tactics. It is thus key for businesses to develop a cyber security strategy and ensure its implementation. The latter needs to ensure the provision of up-to-date and relevant training to staff, and to establish a well-coordinated cybersecurity program.
Unravel: What explains Singapore’s consistent high ranking over the years?
Mr Caballero: Singapore’s consistent performance in the overall digital competitiveness ranking is largely down to its achievements in the knowledge factor (particularly in talent), in which it has fluctuated between the 1st and 5the position since 2018. During the same period of time, Singapore’s strongest performance is in the technology factor reaching the top position every year since 2018, except for 2021. Although, Singapore ranks relatively low in the future readiness factor (fluctuating between 10th and 15th positions in the 2018-2022 period), particularly in adaptive attitudes and business agility, in IT integration, it has remained among the top economies over the years.
Unravel: What were the reasons Denmark beat the US to the top spot this year?
Mr Caballero: Denmark’s achievement is mainly due to its performance in the future readiness factor, where it attains the top position in the business agility and IT integration sub-factors, reaching 5th in the adaptive attitudes sub-factor. Its ranking in the knowledge and technology factors are robust, slightly increasing in both. Denmark remains among the leading economies in talent and training and education sub-factors. At the same time, the US sees a drop in all factors with the largest (five positions) being in the technology factor in which it ranks 9th. Moreover, the US declines in all sub-factors encompassed in the future readiness factor, with the largest drop being in IT integration, where it ranks 10th (down from 3rd).
Unravel: How are Asia-Pacific economies faring in the rankings? What are some doing better than the others, and what can they learn from the West in being digitally competitive?
Mr Caballero: South Korea (8th) and Hong Kong (9th) are among the top 10 economies in the overall digital competitiveness ranking. South Korea’s strength is in the future readiness factor (2nd) within which it ranks 1st in adaptive attitudes and 2nd in business agility. The strength of Hong Kong SAR’s digital competitiveness is under the technology factor in which it ranks 2nd. Other Asia-Pacific economies in strong positions are Taiwan (11th), Australia (14th) and China (17th). New Zealand (27th), Japan (29th) and Malaysia (31st) remain in the top half of the ranking. Others such as Thailand (40th), Indonesia (51st) and the Philippines (56th) rank in lower positions.
One key aspect that differentiates leading Western economies is their overall greater focus on knowledge, particularly on talent (for example, Switzerland and the Netherlands; although, Singapore tops the ranking in this sub-factor) and scientific concentration (for example, the US and Sweden).
Dr José Caballero is a Senior Economist at the IMD World Competitiveness Center. He is responsible for the Center’s different research projects and leads the research team in the development and implementation of new models of assessing competitiveness. His research interests focus on the sources of the competitiveness of countries and, more specifically, on the competitiveness of enterprises. José has also worked as a consultant for the European Union Support Program for Central American Integration, the Private Sector Advisory Department at the World Bank, the International Investment Corporation (World Bank), and the Inter-American Development Bank.